Canada’s Real Estate Bubble Went Into Hyperdrive Compared To G7 Peers: US Fed Data

The Canadian real estate bubble is kind of like a plane. People on it know it’s going fast but being inside of it means you don’t really appreciate the speed. On the outside though, the bubble looks like it just broke the sound barrier, especially in contrast to its G7 peers. US Federal Reserve data shows all G7 countries have been rather exuberant recently, as monetary policy inflated home prices everywhere. However, Canada stands out having grown multiples of other countries, and going into hyperdrive in Q1 2022.

Canadian Home Prices Grew 60% Faster Than US Bubble Growth

The Canadian real estate bubble blew past all of its G7 peers. It’s actually so far above its peers, foreign real estate bubbles likely look like deals. Canadian home prices grew 12% in Q1 2022, more than 3x the UK (+3.8%), the second fastest growing country. Annual growth in Q1 reached 31% for Canada, about 60% faster growth than the US saw over the same period. It’s worth mentioning the US Federal Reserve now calls American real estate a bubble, but Canada doesn’t consider itself one. Must be a great weather premium. 

Remember, this isn’t Toronto or Vancouver. It’s the whole country.

Canadian Home Prices Have Increased 80% Since 2016

Medium term growth demonstrates a similar level of exuberance from Canadian real estate buyers. Canada has seen home prices rise 80% since 2016, leaving Germany (60%) as the only country even close to that growth. In Germany, this level of growth is considered a crisis that produced debate on nationalizing the rental stock. In Canada, it’s a projection investors like to use for home price growth over the next 9 years. 

Canadian Real Estate Prices Have Grown At Least 3x Others G7s

Long-term growth is where the Canadian real estate bubble demonstrates how long this problem has been brewing. Canadian home prices have grown 282% since 2005, nearly 3x Germany (97%), the next closest country. Compared to our neighbors to the South, Americans have seen 66% growth — a lot, but a quarter of what was seen in Canada.  

Canada’s Monetary Madness Has Galvanized Moral Hazard 

Canada’s real estate bubble is essentially a bubble on a bubble, built on top of a tinier bubble. Home prices at the last bubble peak in 1990 weren’t achieved in real terms until the 2000s, so there wasn’t much to correct by 2006. However, the country still went ahead and provided stimulus much in the same way the US was responding. 

Monetary policy moves during this period didn’t produce an outrageous amount of growth, but it did create moral hazard. How many times have you heard Canadian real estate investors say home prices don’t fall, the government will do whatever it takes? Even in a small correction they stepped in.

When the 2017 real estate price correction occurred, the Bank of Canada (BoC) began to buy mortgage bonds. This essentially creates more liquidity for mortgage capital, encouraging lending. At the time they called it a routine operation, but it was clearly the implementation of a precursor to quantitative ease (QE). Falling prices began to stall, 2020 hit, and then QE was actually deployed. Saved again. 

Homebuyers, especially the new influx of leverage investors, naturally didn’t see anything wrong with the recent exuberance. Mortgage brokers are even telling clients that rates will fall soon and prices will resume climbing shortly. Why wouldn’t they expect this? The BoC has done it for nearly two decades. Unfortunately, this is going to be the first time inflation is high enough that the bailout mechanism of easy credit threatens monetary stability.

8 Comments

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  • richard stanbridge 5 months ago

    greed has been the front runner thanks to central banks acting like drunken sailors.
    now we are going to see what fear looks like. it will not be pretty.

  • Barrett 5 months ago

    Just two more houses should fix it. Can’t wait to see what adding Q2 to that chart looks like. Should begin to retrace down since prices are falling thousands per week.

    • Trader Jim 5 months ago

      The monetary system can expand by a third and have no impact on prices. All of the money was efficiently allocated and burned at the end. Funny how these nutters haven’t even thought about the narrative they’re pitching.

  • Yoroshiku 5 months ago

    The graphics on that Tweet are… *chef’s kiss*

  • Will 5 months ago

    I thought it was partially due to foreign buyers who know a good deal (and country) when they see it.
    Oh well. Can’t be perfect all the time.
    I should have sold my house when prices were high and move somewhere cheaper. Darn!

  • Web 5 months ago

    Stephen,

    You are sounding increasingly like an unhinged socialist.

    People are free (should be) to spend/invest their money where they wish.

    Not up to you or government; markets need to be unfettered.

    • Trader Jim 4 months ago

      Central bank intervention is a relic of Soviet-era planning to “stimulate” the economy, and distort free markets.

      He’s actually the opposite. The inflated home prices are due to state intervention and subsidized mortgage credit.

      Lots of threads on his twitter explaining why the government’s intervention and moral hazard costs taxpayers BILLIONS to inflate housing. Non-market credit is socialism.

  • Robert Fernandez 4 months ago

    One of the main problem is permitting foreigners (non Canadian) to buy real estate. THE RULE should be simple; YOU DO NOT LIVE HERE, YOU DO NOT BUY HERE. Without naming them many countries have this law.

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